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Litigation Release No. 18222/ July 10, 2003

SEC Obtains Emergency Order to Halt Million-Dollar Scam Targeting Retirees

SEC v. Discover Capital Holdings Corp., et al., 03 Civ. 1496 (D.D.C., filed July 9, 2003)

The United States Securities and Exchange Commission on Wednesday brought an emergency action in D.C. Federal District court to halt an alleged ongoing fraudulent scheme largely aimed at retirees who were customers of brokerages that have gone out of business. The Commission's request for a temporary restraining order was granted by the Honorable Judge Rosemary M. Collyer, who also froze $1.1 million of the assets of two of the defendants, Discover Capital Holdings Corp. and Indianapolis Securities, Inc., pending a preliminary hearing.

The Commission's complaint alleges that the defendants, Eli Dinov, his brother Ari Dinov, and David Rubinov used spam e-mail touts and misleading, high pressure sales calls to raise more than $1.1 million through the sale of private placement shares of Uniondale, New York-based Discover Capital Holdings Corp., a company controlled by the individual defendants, through Discover's wholly-owned broker-dealer subsidiary, Indianapolis Securities, Inc.

Eli Dinov is Discover's president, Ari Dinov is Indianpolis Securities' secretary and treasurer, and Rubinov is a 27 year-old securities law recidivist previously barred from association with any broker or dealer. All three reside in Brooklyn, New York.

In its complaint, the Commission alleges that the defendants attained customer accounts from defunct brokerages and used the firms' customer lists to identify potential victims. Having already bilked mostly elderly or retired investors in Florida, Michigan and Wisconsin, the defendants were targeting customers from a recently bankrupt Colorado firm when stopped by the court's order.

In particular, the Commission's complant alleges that:

  • The defendants orchestrated a fraudulent, multi-front sales campaign. In addition to a mass email misleadingly touting Discover to the general public, the defendants made use of traditional boiler room sales techniques, including misleading sales calls targeting new customers culled from client lists acquired from small, defunct broker-dealers; sales visits to the homes of some investors; and sponsorship of an investment "seminar" pitching the private placement.

  • The defendants failed to disclose to investors the significant role played at Discover by Rubinov, who is barred from association with any broker or dealer (See Admin. Proc. Rel. No. 34-46158) and permanently enjoined from violating the anti-fraud provisions of the federal securities laws in connection with prior allegations by the Commission that he engaged in fraudulent sales practices (See Lit. Rel. No. 16238).

  • The defendants created and supported the public market for Discover's common shares, creating an artificial price which they highlighted for investors, claiming that purchasers of the preferred shares would effectively make a 150% profit instantly.

Specifically, the complaint charges the defendants with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks, against each, civil penalties, disgorgement of all ill-gotten gains plus prejudgment interest, and preliminary and permanent injunctions barring future violations of the anti-fraud provisions of the federal securities laws.

The Commission acknowledges the assistance of NASD Regulation's Market Regulation Department in the investigation of this matter.

SEC Complaint in this matter



Modified: 07/10/2003